Which of the following explains why the supply of savings is upward sloping?
A) An increase in the interest rate leads to an increase in the quantity of saving.
B) An increase in the interest rate leads to an increase in the opportunity cost of saving.
C) An increase in investment leads to an increase in the level of saving.
D) An increase in time preference leads to an increase in the quantity of saving.

Question

Quizplus · Accepted Answer

An increase in the interest rate makes saving more attractive because it increases the return on savings, encouraging more people to save or existing savers to save more. This is why the supply of savings is upward sloping; as the interest rate rises, the quantity of savings supplied also increases.

Which of the Following Explains Why the Supply of Savings